Unchained - The Chopping Block: The CLARITY Act, Hyperliquid vs CME, and the Prediction Market Supreme Court Showdown

Episode Date: May 21, 2026

Rebecca from Jito Labs joins Haseeb, Tom, and Tarun for a regulation deep-dive covering the CLARITY Act's stablecoin yield compromise and presidential ethics sticking points, CME and ICE's lobbying war against Hyperliquid's RWA perps, the prediction market legal battle heading to the Supreme Court, and whether the SEC's tokenized securities innovation exemption will actually matter. Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. This week, joining us is Rebecca Rettig, Chief Legal Officer at Jito Labs, who's here to help the crew make sense of the absolute regulatory tornado tearing through the industry. First up: the CLARITY Act. It just got out of Senate Banking Committee, but the road to passage is anything but smooth. The stablecoin yield fight with banks ended in a "do stuff yield" compromise, but presidential ethics provisions remain the last polarizing hurdle. Rebecca breaks down what actually changes for token founders if it passes — spoiler: not much immediately, since rulemaking alone could take years. Then: CME and ICE have declared war on Hyperliquid, lobbying the Hill to force CFTC registration on the decentralized perps giant. The crew debates who actually wins US regulated perps, whether Hyperliquid's pre-IPO markets represent a genuine threat to investment banking, and Rebecca introduces "on-chain finance" — a distinction the panel immediately roasts her for. Finally: prediction markets are in a legal bloodbath across state courts with a Supreme Court showdown likely by 2027, and the SEC's tokenized securities innovation exemption has Twitter buzzing but Rebecca skeptical. Let's get into it. Listen to the episode on Apple Podcasts, Spotify, Pods, Fountain, Podcast Addict, Pocket Casts, Amazon Music, or on your favorite podcast platform. Show highlights 🔹 CLARITY Act Passes Senate Banking – Landmark crypto bill advances with bipartisan support, but presidential ethics provisions remain the final sticking point before a full Senate floor vote. 🔹 Stablecoin Yield Compromise – Banks screamed bloody murder, but the "do stuff yield" deal means transaction-based rewards are in and bank deposit lookalikes are out. 🔹 CME & ICE vs Hyperliquid – Traditional exchanges lobby Congress to force CFTC registration, KYC/AML, and trade surveillance on the decentralized perps giant. 🔹 Hyperliquid Prices Cerebras Better Than Bankers – Pre-IPO market nails the opening price while investment banks undershoot by over 100%, raising questions about the future of book building. 🔹 Rebecca Rettig Returns – Jito Labs CLO breaks down what CLARITY actually means for token founders (spoiler: not much changes immediately — rulemaking takes years). 🔹 Prediction Markets Head to SCOTUS – Legal bloodbath across state courts likely culminates in a Supreme Court showdown by 2027 over CFTC vs state gaming jurisdiction. 🔹 The Super Bowl Coin Toss Traded at 58/42 – Tarun surfaces the most absurd prediction market of the year, and the CFTC chair basically says it shouldn't exist. 🔹 Who Wins US Regulated Perps? – Haseeb bets on Coinbase and Robinhood, Tarun argues there's an opening for a dark horse, and Rebecca flags HIP 4's unified margin as a game-changer. 🔹 SEC Innovation Exemption Buzz – Twitter is hyped about tokenized securities guidance, but Rebecca is skeptical it drops before CLARITY is resolved. 🔹 OnFi Is Not Going to Happen – Rebecca tries to coin "on-chain finance" as distinct from DeFi. The panel roasts her. Mean Girls memes are inevitable. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Tom Schmidt, General Partner at Dragonfly  Guest⭐️ Rebecca Rettig, Jurisprudential Genius at Jito Labs Timestamps 00:00 Intro 02:10 The CLARITY Act: Banks vs Crypto 05:21 The "Do Stuff Yield" Compromise 07:18 The Compromise: Transaction-Based Rewards 10:22 Presidential Ethics: The Last Sticking Point 12:26 What Actually Changes If CLARITY Passes? 16:01 Token Founders: What Do You Have to Do? 18:41 Developer Protection & DeFi Activity 20:15 CME & ICE Lobbying Against Hyperliquid 26:05 On-Chain Finance vs DeFi 29:57 Who Wins US Regulated Perps? 34:39 ETF Options vs Crypto Perps 40:24 What Hyperliquid Means for Investment Banking 44:50 Retail IPO Participation & Dynamic Share Counts 49:25 Prediction Markets: Kalshi & Polymarket vs the States 51:40 Supreme Court Showdown: CFTC vs State Gaming Laws 58:30 Economic Impact Test  01:01:47 Tokenized Securities & the SEC Innovation Exemption 01:06:41 Do Issuers Actually Care About Tokenization? Disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices

I think we're Robert. We're here. Yeah. This is actually ironically the one time that there's something useful to say. I know, that's true. That's true. Well. This topic, sorry, sorry. I'm trying to. Wow. Are we not rolling? We should tell us it wrong to them. I'm trying to bond.

You are rolling? Great. That's the intro. That's the intro. Not a dividend. It's a tale of two quons. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. I'm in the trading firms who are very involved. I like that ETH is the ultimate POMES. DFI Protocol is part of the antidote to this problem.

Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider perspective on the crypto topics of the day. So quick intro, this first we got Tom, the DFI Maven and Master of Memes. Hello, everyone.

And then we got Tarun, the Giga Brain and Grand Puba at Gauntlet. Yo. Joining us today, once again, we've got special guest, Rebecca, jurisprudential genius at Gito Labs. Oh, that's a good one. Hey, everybody.

Thanks for having me. Thanks for being here. and I'm a C of the head hype man at Dragonfly. We're early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping blocks at XYZ from our disclosures. So we've been out of pocket for a couple weeks. We decided that crypto was too depressing, and so we wanted to escape through all. That's not true.

That's not true. We were just very busy, and it's hard to coordinate schedules. But we are now, the whole industry is busy because of what's happening in regulation. And so we thought, Rebecca, we have to bring you on because we have to bring you on because we are have no idea how to interpret everything that's happening on the regulatory side. There's so many things cooking all at the same time. And the centerpiece of all that is the clarity act. So we talked a lot about clarity on the show. We talked a lot about 521. I imagine a lot of people who are like kind of listening to the show while they're working out or walking their dog or whatever.

They're like, I've heard these terms. I don't really understand where things are at or like why you guys keep talking about it. Like when is this actually going to happen? So I kind of wanted to do like sort of episode, like mid-season recap of where we are and like what's the motivation of all the characters involved. So I'm trying to give a high level. And Rebecca, you can correct me if I get anything wrong. Okay. So predecessor to clarity was fit 21. That was bipartisan under Biden in 23. Okay, Trump gets elected. He's like, okay, that thing didn't get all the way to the Senate. I'm going to make sure that the future version of this, now called clarity, is going to pass. That's a cornerstone of his crypto agenda for United States becoming the crypto capital of the world.

Okay. We get the Genius Act. I don't think that happened under Biden. I think it happened under Trump. When it got out of... 51? When it got out of the House. But maybe I'm wrong.

I'm pretty sure it happened under Biden. I'm pretty sure it happened under Biden. I'm like very confident happened under Biden. Okay. Anyway. But so Trump was like, okay, this is going to be a centerpiece. I'm actually going to get this thing passed. So he first gets Genius Act done.

Then comes clarity. Now, the problem with clarity, there were a few sticking points for clarity getting, you know, getting to consensus. So it passed the House fairly early, went to the Senate, and then the Senate has just been a disaster. So just lots and lots of infighting and, you know, a lot of different iterations of markup on clarity. The first and biggest fight has been over stable coin yield. So stable coin yield, you know, the Genius Act originally said stable coin yield basically go for it, right? There were some restrictions, but it's more or less very easy to circumvent the rules that were in clarity.

The banks caught onto this, and the banks were like, oh, no, you didn't. And they are trying to railroad. If you can live in the first past bill, does that count as cutting on or getting caught with your pants down? I think the banks were just very unsophisticated,

I think, when it came to genius. And I don't think they realized the infinite ingenuity of crypto companies to more or less figure out how to do exactly what they want, no matter what the law says. Like, the intention of clarity was that, okay, these are not banks. So these are different products than banks, and so they shouldn't be allowed to pay yields.

The banks realize, like, oh, you can just, like, find a way to make it a rewards program, and then basically it just pays yield, right? So, Thomas, you're about to jump in. No, no, no, I agree. I mean, that's actually, like, how Coinbase frames it right now, right? If you have, like, USTC on the platform, it's like, oh, here's your, you know, reward. It's not like... Here's your loyalty reward for being loyal to having your bank deposit here, you know, effectively.

To the point, it's like this is only for people who have... have USDA on the platform. It's not like a global yield or something like that. Right. The banks saw that and they just raise hell. They screen bloody murder. They said, oh, my God, this is going to destroy the banking system. It's going to drain deposits. It's going to kill lending. It's going to kill small banks. They kind of found every story they could. The White House didn't buy it. The industry didn't buy it. It seems like nobody buys it, but the bank lobby is the bank lobby. They're very powerful. And so there was all this, jockying of like, oh, maybe Coinbase is going to kill the bill. Coinbase, I think they

kind of walked out in the middle of this thing and was like, no bill is better than a bad bill. We're not going to support this. You guys are killing stable coins. Eventually, it seems that Coinbase was able to get to some kind of compromise after a lot of politicking. They finally got to a compromise, and the compromise is largely that you can do transaction-based rewards. So if you send USTC, you can get a order for that, if you do stuff.

But it can't look like a bank deposit. It can't look like bank yield, right? Yeah, it's a do stuff yield. Exactly. So as long as you do stuff, now do stuff is a pretty broad standard. And again, the infinite ingenuity of crypto companies, I'm assuming that do stuff is like log in and click a button. You know, it's like, it's like, you know, it's like coin base learn and earn or something.

Like that's, that's technically doing stuff. So I don't know. We'll see how this evolves. That's so funny, actually, that like 21 and Earn somehow are like perfect for this bill. Yeah. Totally, totally, totally. Look, I mean, I'm happy to get educated along with getting my stable queen yield. I mean, everything old is new again. I mean, I think the most interesting thing is there were these series of White House meetings. So in January, that's the time when Coinbase was like, I don't think we can get this onto the committee floor of the Senate. And so

yield did not look good then. And so after that, that idea of a markup was dead in the water, then the White House held a number of meetings with industry and with banking lobbyists. or banking industry associations. And that's how they got to this compromise, which, by the way, is sort of bipartisan. It's with Tillis and also Brooks, so Republican and a Democrat, and a very junior Democratic senator who's putting it forward.

And all of a sudden, like last week before the markup, somebody from the, I think the Bank Policy Institute, but like a big bank association was like, we have to get to the table to talk about this. And the White House was like, we invited you to the table and you guys didn't come? So this is it. And Tillis, who had been real, who was on the Republican side and we really needed him to be able to get it to the floor and out of committee from the markup, basically put his foot down and was like, no, this is a good compromise.

Sorry, you're a little late. I don't know if that means yield is really dead between now and we got it out of the Senate Banking Committee and when the entire bill gets to the Senate floor. So we may see another yield kerfuffle, but in theory, that should be a dead issue. Like, that should be a done. It should be done. This is the compromise is transaction-based boards. Okay. So Coinbase says they can live with this.

It seems that the banks can live with this probably. They might not have a choice. Yeah. They might not have a choice. Yeah, they might not have a choice. They still don't understand. So what I don't really understand is the bank's argument and they never have. And there was this White House report that basically said it was wrong.

But like all of these stable coins are underpinned by reserves that are held in banks. So I don't know why everybody thinks there's going to be bankflankful. What I actually think the issue is is that holding your deposit at a bank is not the bank's largest source of revenue, right? It's all the other things you do at your bank. And so I actually think they're worried about it from a customer acquisition and sort of getting customers onto all other parts of their platform perspective and less from an actual bank deposit flight perspective. Yeah. I mean, look, I think their arguments are not crazy. I think they're wrong, but they're not crazy, right?

because, like, look, right now, stable coins are tiny. Like, $300 billion in the context of the banking system is just nothing. It's just absolutely nothing, totally irrelevant to what's happening. And most of these are not U.S. depositors. Most of these are international people who don't already have access to U.S. dollar. That's why stable coins are so popular internationally. It's why you don't see most retailer, you know, you don't see people going to Walmart and buying stuff as stablecoins,

but you do see this kind of behavior internationally all the time. It's why people talk about emerging markets, adopting stable coins, and so on. So I think that part of the argument is obviously specious, but you have then Secretary Besson saying that he believes that, you know, there's going to be $2.7 trillion in stable coins by the end of the decade. That would imply something like, you know, 15% of the money supply is going to be just stablecoins. That is big enough to have a distortive effect on the banking system, but it's not anywhere near that today. But where are you going to hold everything that underlies? But they mostly hold them in treasuries, right? They don't hold them in just bank deposits.

It's bank deposit you can lend out and continue and treasury. And treasury. Right. Treasury you can't. But the presumption, and I think there's a reason why Besson cares about this, is that this is net dollar demand, right? This is net new demand.

This is not just, oh, somebody who has a bank deposit at JP Morgan moved their bank deposits over into stable coins to get their transaction based yield, right? Like that obviously would make no sense. That's not a credible story of where the Bitcoin demand is coming from. So it's the internationalization of the dollar that's likely to result in this huge increase in supply, and that's why Besson wants it. If it's just shuffling around bank deposits, this is not strategic to the U.S. Right. So that's why I think the argument is specious, but it is a little bit subtle because the scale right now makes it hard to quantify. But that's what the White

House basically came on and said, is that these arguments are bullshit. You guys are kind of pandering with fake arguments. Like, this is obviously not going to affect lending in the U.S. So anyway, the last piece. So it just got out of Senate banking. It's going to the floor soon, is my understanding. Yeah, it has to get reconciled with what went through the Senate Ag Committee. Oh, right. So there's going to be the whole process to reconcile those parts. But so the last thing that seems to be the real sticking point for this bill is presidential ethics.

That's the nice way of saying Trump corruption stuff. So the Democratic position very clearly is that there needs to be some kind of provision in this bill that prevents elected officials, I believe is the language that they're proposing to, profit issue, something, right? And obviously their eyes are squarely on World Liberty Financial and the whole kerfuffle that's emerged around. And I mean, Trump coin, I think to a lesser extent, but I think World Warfare Financial is the thing that gets people really worked up, especially after all the UAE reporting that the New York Times did. And this is clearly the Republicans are not buying it. The Democrats are digging in their feet. And this now feels like this is the really polarizing issue that's left. Now they don't need

Democrats necessarily to pass this, but it becomes a lot harder if the Democrats fully dig in their heels. Is that correct? They need the Democrat. I mean, you need 60 to get this out of the Senate. Oh, right. Okay. So you definitely need Democrats. How is this like totally dividing all the Democrats or are there people crossing the line? So before it went to markup in Senate banking, there was a closed door meeting where everybody was negotiating on ethics. There was no actual, I think, end game, right? No compromise like we have on yield or anything like that. But people felt like things had moved or progressed in a positive way. So that's why we saw Senator Gallego and Senator also Brooks, who are Democrats. So we saw it come out a committee in a bipartisan way. And I think it's because they felt that progress had been made. They said more progress needs to be made. It doesn't guarantee that they'll vote for it on the floor of the Senate. But I think people had felt meaningful progress had been made on ethics.

We don't know what it is specifically, but I think we definitely have to get that across the line. So we expect there will be something in the bill about presidential ethics? or elected official ethics. Something like that. Yeah. Okay. Okay. Okay.

I see. But we haven't seen it yet. No. So, okay. Then. Well, I haven't seen it. You haven't seen it personally, which means it doesn't exist. Okay.

So the other element of getting this thing out. So right now, if you look at Pollymarket, Polymarket's pricing, I think, 61% last I saw that this thing passes. That was significantly below the high, which was like 80-something percent in February. Also above the low, which was like 40-something percent. when things were falling apart, when Coinbase was walking out of the room. So it's fluctuating quite a bit.

More likely than not that it passes, but it wouldn't be surprised if this doesn't pass. If it doesn't pass this year, the expectation is that probably Dems with the midterms, and then it's game over. Probably this thing is not going to pass, and we're going to have to rely entirely

on rulemaking and just the agencies going out and just saying, hey, here's the rules of the road, and then, you know, the next president, if they're a Democrat, can just overturn them. So let's imagine, let's assume that this does pass, because I think what a lot of people want to know is that, okay, let's say this does pass. I've heard a lot about how important this bill is.

I've heard a lot that this is like the kingpin. This is the mother load. This is so great. Everything's going to be wonderful. Like for most founders, for token markets, for whatever, what actually happens if this thing passes? Great question. So there are something like 45 rulemakings just on the Senate side of the bill, Senate banking side of the bill.

So that's Treasury. That's SEC. stuff like that, which means you have some contours of the law. You know what you can do, but you still need a lot more guidance from the SEC, from Treasury, and from the CFTC. So we don't get immediate clarity. So the bill says, you know, SEC, you have to come up with rules for this or, you know, OCC you have to come up with rules for this, et cetera.

Yeah, exactly. And rulemaking takes a long time. Then you get to do notice and comment. So the public all gets to weigh in. Then you will put out the actual end of the rule, given what we've seen. from TradFi of late, there's likely going to be a challenge to a lot of these rules. So you might have to deal with it in court or the SEC and whatever Tradfai industry association will have some lawsuit over how to, you know, whether the rules are appropriate or whatever.

So we're not going to have like 100% clarity anytime soon. But what I think it does do is it future proofs the industry in the United States. And a lot of time when you talk to Tradfai people or Tradify institutions who are like dipping their toes in and saying like, oh, well, we've committed a little bit of money and a few people internally to it. You say, like, what do you need? They're like, oh, but I need the Clarity Act to pass me. But it's not going to touch anything that you do. Like, you're not issuing a token or selling tokens. Never underestimate someone of a big company finding a line to do no work for six months. So, so yeah, but they do, I think that people think this would future-proof the industry

in the United States. Right. So it's on the checklist. And because it's on the checklist, we need to pass this baby. Yeah, that's right. But I will say Dodd-Frank was 20, 10 and the rulemaking is still going on from Dad Frank. Fair enough. So you think, okay, let's say the clarity passes, okay, there's all this rulemaking that these get done, there's going to be challenges, there's going to be this, going to be that. So it could be like, honestly, like three years and still nothing is actually required of you. I think you might get guidance or temporary rules or things like that.

The SEC has been putting out guidance really quickly and faster than it. So obviously the agencies are separately doing a lot of rulemaking and giving a lot of guidance. They haven't done rulemaking yet in full. They've done a lot of guidance. Okay, okay. So they tell you, yo, just so you know, we probably won't bother you if you do this and this and this and this. Non-binding, we can still bother you if we choose to. But like the law changing is going to take years even in the happy path.

Well, you will have the contours of the law, right? Like, I mean, clarity doesn't say nothing. It's 309 pages. So it says a lot. And you will have. Okay, let's say I'm a token founder. I've got my token. Yeah.

Clarity passes. Launched or not launched. launched. Oh, yeah. I'm live. Let's say I'm live. Let's say I'm live. Let's say I'm live. Okay. What do I have to do? Because clarity passed in 2026. That's a great question. I mean, I'd say the easiest thing is disclosures. Okay. I have to do that immediately or I have to wait for the C to like do a bunch of stuff and come up with disclosure regime. So I do nothing. Okay. So 2027 I do. I have to do nothing. Maybe the SEC will expedite it. I mean, you guys have you work with Gito. I do. They have a token. Yeah. You guys will be, you guys are watching closely.

Yep. What are you telling Gito? They already do your disclosures. We do a lot of news. You do the blockwork disclosures, which is great. Goodos to the blockwork disclosures. Like what else do you need to do? What is our, what's on the checklist of like the clarity, 2027?

So the strange thing is you only do disclosures in certain circumstances. You'd have to graduate out of being like in a super centralized world. And it's actually quite hard to do that under clarity. So you have to do longstanding ongoing disclosures. Now, query whether it comes. I work at Gito Labs. We're heavily software engineering, right? We're building.

There's Gito Foundation and query who does that, right? Depending on how the rulemaking is done, does the foundation... That's not clarified yet. Not really. You're still going to have... I mean, I'd assume some... The foundations are going to be the ones to do it because they're the stewards of the network. They, you know, have these large token holdings and things like that.

But yeah, you're going to have a lot of... And so, okay, let's say that post-clarity, you are a token project and you do not meet the decentralization threshold. And obviously right now in crypto, like the vibes have sort of shifted where it's like, why even decentralized, you know, like isn't it great to have centralized leadership? So in that kind of environment, what does clarity change? What does it afford relative to what people are doing today, which is like, yo, just whatever, just do it. You'll have, I mean, in a positive news and to this blockworks point, right, you're going to have mandatory disclosures, which is good. You want that, right?

Like, I mean, I think the lack of clarity, all the rugs, all the things we've seen, lack of clarity, no pun intended. And all the rugs have, I think, caused a lot of flight out of here. And so I think having this future-proofed, mature way that we're going to handle tokens is probably a net positive. Okay. You're looking at Tarun. Are you seeing if you sleep? I'm trying to pay. It's like Tarun is just like daydreaming while we're talking about it.

Or is like dying a little bit on the end. Yeah. I can sort of see as like his brain is going into defrag. Yeah. No, you know, I have nothing. True loves regulation. Tarun really loved regulation. I was like, I'm so sorry.

Yeah, Tarun actually came early today because he was so excited for this episode. I'm curious where things are netting out on developer protection because I know this was also a happy point of debate and obviously I'll say. So great question. So I would say that is going to remain another open item like ethics. I don't think developer protections is closed. And I think that when we think about is this bill going to pass, the answer is more likely than not because it scopes in. a lot of development activity and defy activity, which, you know, many prior iterations of the bill, there have been four or five, you know, iterations, not of this particular bill, but kind of.

Like, this bill is a hybrid of RFIA, which was 2019 and fit. And so we've been seeing this come through for a very long time, and it didn't touch Defi every time. And now it does, right? It touches front ends. It touches software developers under the BRCA. There's a whole new section under 301 about controlling developers. and Treasury gets to define who has control over a protocol. And there were last minute changes during the markup,

which took references to the BRCA and non-controlling software developers out of 301, so it didn't contain that continued protection. So I don't think we're done on the developer protection side. I think we really have to hold the line if we want to make sure with this such a comprehensive bill, making sure that you can continue to innovate. Because, like, great that you can issue tokens in the United States. but if you don't feel like you can actually build a protocol here in a safe way without having to register as a money transmitter or something like that, I don't think we've done our jobs. Yeah.

Okay. Well, speaking of registering as a money transmitter. Yeah. One of the other big stories was the CME and ICE apparently have been doing some lobbying on the hill to try to get a crackdown on hyperliquid. So hyperliquid obviously is absolutely enormous. They've been growing dramatically in terms of their RWA perps. And this has caught the attention of the CME and of ICE. Unsurprisingly, obviously, they trade both stocks and commodities. And the fact that hyperliquid was basically in the news almost continuously during the opening

Salvos of the Iran War with all of the commodities trading that was happening there, maybe unsurprisingly, there's some what's been called concern lobbying from the CME and from ICE. So it seems like a lot of this is kind of inside reporting about what they've been saying to different people in the Hill. But supposedly some of the claims are that they've been asking for hyperliquid to be forced into a CFTC DCM registration, which is normally what you would need in order to trade commodities, and to enforce KYC AML within hyperliquid, to have trade surveillance and position limits, basically the same kind of stuff that happens in centralized venues. And the things that they are, quote-unquote, concern lobbying over is market manipulation, sanctions evasion, price discovery migrating on chain, which is maybe, you know, not appropriate, slash not fair,

slash not taking into consideration some social concerns that that normally are taking into consideration by commodities venues and the compliance asymmetry between centralized and decentralized venues. So hyperliquid issued something of rebuttal. They claim that, well, actually, on-chain transparency is better than opaque orderbooks. The fact that there's no central counterparty means that there's lower systemic risk relative to the venues that you have to do this kind of regulation for. And they claim that, look, we should really fall under clarity-style defy regulatory frameworks, not under these forced Trad-Fi compliance regimes. And this is basically protectionism. And these guys are the incumbents, and they're trying

to attack disruptors. So that's their counterclaims. Obviously, Twitter, very, very on the side of Hyperliquid, unsurprisingly. But there is, you know, no question that this is going to become as Hyperliquid gets bigger and as DeFi gets bigger and starts playing more in Tradfy. You know, if you're just trading Bitcoin perps and Ethereum perps, like, probably you'd be left alone. But once you start playing the big boy games, the big boy weapons start coming out. So curious what you guys think about. I mean, Turin, maybe you finally have an opinion today. What you think about the- Why do you need position limits when you have a funding rate? I don't understand. Why do you

what? Why do you need position limits when you have a funding rate? And do you, the collateral is okay. It's like, it basically is a natural throttling mechanism just because you don't have it in CME and like data futures. The position limits are consumer protection, no? Are they not? Yeah, but I'm just saying like there's also a sense in which there's an economic limit to the position. Right.

I mean, if you want to go trade in the CME and you're just like a random punter. Right. So it's like they kind of have the same. There's a lot of stuff where I think actually there's a lot of loss in translation on purpose where it's like they don't want to like read the read how a perp works. They just want to be like, oh, well, this exact thing in our world doesn't exist. Right. But like a lot of a lot of how.

tradfi derivatives venues work is like there's just this gigantic bureaucracy of consumer protection right so like you know you have to tell you I'm an accredited investor and I'm married and I've I have this much risk profile and I love I know how options work and I've traded these but you have to do all that shit if you want to get onto a new venue and in hyperliquid you're just like you know you click privy and you're in I if you're outside of the US if you're yeah we were like talking about this before they're just because I'm like, like, why now are they raising such a stink? Because I'm like RWA perps and... I mean, it's the pre-IPO stuff.

I think... No, that just happened like 10 minutes ago. Yeah. That just happened to... I don't... That's getting way more media coverage, I think, than the Iran. No, the oil stuff definitely was more coverage. Yeah.

The SpaceX and the Cerebris thing, I feel like it's been like... Yeah, but it's also been like the past what, like, a couple days. I mean, Cerebus they were talking. Yeah, yeah, yeah, yeah. But I agree, like, the oil and gold stuff was really blowing up when the Iran War was going off. But I was like, again, like, I don't know, there have been, you know, sex, RWA perps. There was like, osteum way before. And so, like, I guess it just looked. But I mean, but we were sort of talking about this before it started like, what was the volume on that, right? Versus when you

see what trade XYZ did when it launched on hip three and how enormous that was around the time of the Iran War. I think the other reason that there is interest around this now to live a little inside baseball is that just like we're all waiting for the innovation exemption to come out on tokenized equities from the SEC. Everybody is waiting for perps guidance from the CFTC. They've been preparing it and they've been getting ready for it. And I think, I don't know if some traditional financial players, we can leave them nameless for now, either saw it, caught wind of it, heard what it was going to be and maybe thought it was too permissive or something like that. And so I think that is why they're out there lobbying now because I think this administration and the agencies

are seen as very innovation forward and open to other ideas. And to your point, there have been longtime incumbents, especially in the derivatives world, and they haven't been challenged for a very long time. CME is unbelievably powerful. And to your question before, intermediation and what you're saying, Intermediation is it like inherent in the CFTC. It's actually not a consumer. CFTC is not a consumer protection regulator.

It's a markets regulator because you don't have retail trading. Well, you have clearing agents all right, which changes the whole thing. Exactly. So you don't have, you know, normal people like who can get onto e-trade and trade, you know, fractions of stocks or something like that. You don't have that in the commodities world in the same way. And so I think they're seeing this disruption coming. And I'd say hyperliquid is more like on-chain finance versus D-Fi.

we have to start making that distinction in a meaningful way, especially in light of developer protections and clarity. Sorry, can you, can you elucidate what you mean by that? Yeah. So, chain finance versus defy? Sure. I mean, I think on-chain finance has all the on-chain part, a lot of the non-custodial aspects that we'd expect in, you know, smart contract-based protocols.

But there are certain elements of, and people can deploy, right, in three and other parts of hyperliquid without permission or without permissioning. But I think you have a narrow set. You have closed source code, things like that. So different than like the hallmarks of what we long have talked about in the defy as defy. So, you know, those terms are just getting really mixed right now. And I think as we're thinking about developer protections and are you just like a coder, you know, committing, doing a GitHub commit versus are you creating like a much larger on chain transparent market? Everyone's going to hate on me on Twitter.

I get it. I mean, they already do. It's fun. We got Canton on you last time. Well, now we'll get the hyperlickly guys up. Okay. Yeah, I was going to say, I don't know if Opefy is really going to resonate with people. It won't.

UpFi? Sorry, on, on five. On five. Yeah, yeah. But people have been using on chain finance. I'm not like the person who has come up with. I have not heard this. I have not heard this.

I have not. It really sounds like a dot-com bubble company, though. On fi. On fi. That does. That is not a good thing. It just like it feels like it feels like it's like it's like. You point that.

This sounds like regulators, like lawyers are talking about. By five. Nobody else in Cryptotter is talking about. On-chain finance. Are the lawyers talking about on-chain finance? I don't know. I mean, maybe it's just a me thing because I've been having to deal with regulators for so long. You've coined this term on-chain finance.

I don't think so. And you're trying to get it to go viral by putting it on the show. And in SEPI, you're like, you guys haven't heard this. Everyone's talking about it. I mean, intern has a mean-girl's meme to make, I guess, now. You're trying to make on fire. Oh, my God. I'm going to be in a burn book.

Nice. Nice. Okay. Tom, what's your, what's your take? Yeah, I mean, it makes sense. I think it kind of comports with maybe my guess, which is, yes, it's notable. There's, you know, Bloomberg stories on regularly about, yeah, these hyperliquid RWA markets kind of kind of blowing up. I think it's more like it feels like maybe there's a tension where to point we've all been waiting for this purpose guidance. A lot of venues want to offer this in the U.S. And so you see someone, I mean, in some ways, it's kind of like the, like, like, you know, all the crypto-central exchanges were like hating hyperliquid. There's a whole like, oh, jelly jelly conspiracy that like Binance. And so it's like, oh, now this is happening, but just for like the, you know, non-crypto-equivalent. Yeah. They hate the young.

Oh, there's many, there's many of these centralized exchange conspiracies. Oh. Because there was some other recent manipulation last week. And everyone was like, oh, it was Bigget because all the withdrawals were to Big Get. Oh, interesting. Yeah. It actually has happened a few times that like people have had this. Yeah.

I mean, but it also reflects to the fact that, you know, hyperliquid at that time was purely crypto. Now it's like roughly half of RWA's. Well, also the structure is different of the hip three markets. There's no kind of the backstop and liquidity provision is different. So there's like also some structural difference. Yeah, but I think the main thing is just like the market share now is leaning into the big boy lanes. And it's a lot scarier to make the CME your enemy than to make Binance or enemy. Binance. I mean, Binance is Binance. They're powerful. But, you know, what are they're going to do they're going to push up a meme coin you know like but if cmee is coming after you like cmee has got much bigger guns that finance stuff oh yeah they can make your life very very difficult

and that seems to be what they're trying to do now tv if they will succeed in doing that but it's very clear like yes you've you've you've poked the hornets nest because you're playing in the biggest game in the world and the biggest game in the world is you know okay so i have i have a question for for everyone here suppose we got some perps guidance next week. There's a million people all trying to be centralized perps exchange in the U.S. who's like trying to get the licenses open for it. There's existing ones. There's people offshore who want to come back onshore. Who do you think actually wins on a three-year time horizon in U.S. regulated perps? Getting a perp license? No, and like you volume like usage. Who do you

actually think is like the dominant perp exchange that's regulated? That's regulated. Or a Like that US users can use I mean yeah domestically I would assume Robin Hood and Coinbase I mean it's not a surprising you think it's a coin base it'd be Robin Hood and Coinbase But the the Coinbase Purps product has the offshore one has been really abysmal right like no volume No it's offshore right you US customers can't access it so I mean like you would think there'd even be more Arb volume but it's like the spreads are horrible like it really is like no one used comparatively but I mean again it's a different audience and like yeah yeah I agree etc.

But like, I think the thing we feel like we keep learning is just like, distribution is king. And like I very much believe that. Yeah, but there are other people of distribution, right? Domestically?

Imagine it was possible for interactive brokers to open a purpose exchange. I kind of think that, the way that they open a prediction market. Yeah. I think people overestimate how much better perps are than the products that people already intuitively use. Like if you're, you know,

punting stuff, If you're like, you know, Wall Street bets like options trader, like, yeah, you might not be able to do all the calculations about options, but like you know how to punt on options. And you already, it's already kind of socialized among the people who are in your group. And like, so you're just going to keep punting options. No, but I think the, these market stores are quite sticky. I think the reason the perp thing is more interesting is it, I'm sure the regulated months will also be 24-7 immediately versus the lit market. Because kind of, it's not really perp. I wouldn't be so certain about that.

It's not really a perp then if you're, if you're shutting it off at 4 p.m. and restarting it. I mean, there are some, there are some RWA perps that do that. Yeah, yeah, yeah. But, okay, but again, which ones have the most liquidity? Yeah, yeah, no, yeah, granted. Like, I don't think people want that. So my point is one reason, advantage over the option stuff. It's like, I don't have to think about it.

I can just be in my underwear at 4 a.m. and trade, right? And I kind of think that's the whole, that's the market that it's going for. Yeah, plausibly. But I still think, like, the people who, I think it is probably going to be very hard to recreate the liquidity of what exists in futures market and options markets on perps for stocks and commodities. I think it's a lot easier for crypto. And so very likely, okay, if it's going to be perps on crypto, then it's probably going to

be Bitcoin and Eath. It's probably going to be Coinbase in Robin Hood and the people who already have distribution in the U.S. That's my guess. I mean, it can always be proven wrong, but I also think like... So then you think the winner is existing? I think, yeah, mostly. I mean, but the other thing too is like that's what we've largely seen in the U.S.

is that over the last decade, basically it's been the people who already have distribution who've won in crypto. Well, with Robin Hood, I agree, right? They've seemingly adapted to a lot of this stuff pretty well. But also Coinbase. When has Coinbase not been in the lead for the last like seven, eight years? I mean, the stock stuff, right? Their stock volume is pretty low.

Coinbase? But all the tokenized stock volume is low. Yeah, yeah, yeah. But I'm just saying like Robin Hood seems to like, there, purpose at least when they launched actually got more traction you know like they somehow gotten their user base to move to these products whereas coinbase has a little bit of like we're bitcoin maxis or we love custody product or we love institutional but there's other things with more risk i hate like i i feel like i you constantly see people be like oh coinbase why are you

offering me the the betting on the NBA like this is disgusting i'm a bitcoin holder i don't want to use the your product is encouraging gambling yes i do think they have a cultural distinction where they They have some users who are like, this is where I keep hold hold all only. Like, why are you offering me gambling? Yeah, no, I think that's absolutely right is that Coinbase is trying to cross the chasm that Robin Hood has crossed. Yeah. In being this everything app, the everything store, blah, blah, blah.

They talk about it. It's part of their story. And obviously, it's like long term, it is the right strategy. They kind of have to do that. Otherwise, they're going to get pigeonhole. They're going to get outcompeted, but everyone's going to be slowly tripping away. I do think, you know, you're bucketing them as the same thing. I think they are kind of distinct.

They being what? They have Coinbase and Robin Hood. Different customer bases. Like if tomorrow they're regulated perps, they can immediately. But it's effectively a duopoly on crypto in the US, right? So like if you're trading crypto in the US. I don't know. Look at the ibit volume.

Look at CME. I feel like honestly, the ETF options market just killed a lot of leverage trading and regulated form in the US. People don't care. They'd rather just go. I mean, just like looking at the ETF options stuff and just like how much the volume move there. I think like people are prefer.

to trade the ETFs. But they don't even have the alternative. Like, you can't trade Bitcoin options. You're trading Bitcoin ETF options. So it's like... For sure, for sure, for sure. I'm just saying that like, I don't know if I would count out the traditional... Yeah, so I don't know what the numbers are on the Ibit options.

But like, if you look at Ibit spot, it's like less than 10% of the Bitcoin market on the whole. And I don't know how that breaks up for US specifically. But I think you have to compare to you. Yeah, but like the other thing is like, of course, a lot of the... trading on iBit is not retail yeah that's that's true so like i i guess my point though is like i think there's an opening for someone who's not the existing demographic plausibly but if it's like the someone is like okay it's going to be interactive brokers or you know one of these other venues that also has distribution you know like do you think it's a it's a wedge for a startup to come in and be like

yo we're offering perps in the u.s here we go is that the claim i don't know about startup but i mean like Look, call stream polymarket are both trying to do it. Yes. Right? I'm saying there's people. And the burden of proof is on them that they can expand into crypto. Same way that burden of proof is on coinbase, they can expand their prediction markets. Yeah, yeah.

So I'm just saying like there are enough of these neo competitors who have some distribution. That's sort of what I'm. And burden of proof on hyperliquid to now expand into prediction markets with Kept 4. That's right. That'll be really interesting, though, because you have one account for margin on hyperliquid, which you don't yet on any other. venue. So I think that'll change how everybody trades prediction markets. Yeah, I mean, look, it's interesting, but right now Robin Hood is the exception that proves a rule, which is that it's

very hard for anybody else to get into anyone else's vertical. Like almost every other attempt has failed. Robin Hood is kind of special in that they have pulled it off. Yeah. Like, I mean, if you consider RWA's and crypto perps to be a totally different magistria, then maybe hyperliquid has pulled that off. But even then, you know, most of the hyperliquid products that have launched have not been super successful either. These are the two real standouts as like the core product and then the hip three trade XYZ markets. You know, Hyper EVM has not done great. You know, a lot of the other stuff that, you know, obviously USDA ended up recently sunsetting and they did this deal with Coinbase. So there's, you know, the reality is that it's hard to launch new products. And even if you're

really big, like, I mean, you know, we talk about this a lot internally. Is that like, you know, if you think about when Facebook launches a new product or Instagram launches a new product, most of these products don't succeed even at Megacorps. The base rate of new products succeeding is very low, regardless of who you are. I, yeah, we were talking a little bit before the show, but HIP4 and I was like, I think hyperliger just wants one more group of people to piss off. They're like, how do we put on the Native Americans and the state gaming boards are just like, you know, are you seeing it?

And the prediction market in common. And the prediction market. Yeah, yeah. I mean, are you seeing interesting discussion around HIP4 specifically or not yet. I think it's just still so new. I don't think there's even like that much chatter about it. But I do think the idea of having this one margin account will change how people actually can do it. Because now if you want to go, you know, in the 15-minute Bitcoin markets, you still have to go hedge yourself on HyperLiccord or some other venue.

Yeah. I mean, the one thing that has been getting a lot of attention, which you alluded to previously is the pre-IPO markets that just recently launched on Hyperliquid. So there was Cerebrus, which of course, Blockbuster IPO. I think they're trading it went like $70 billion. Well, I think the main thing was that the prediction, or sorry, the hyperliquid price was very close to opening price. Right. So they priced it much better than the bankers did.

So the bankers, I think, priced it at like $1.30. And then they pushed it up to like $180 or something. And the price on hyperliquid was something like $2.80, meaning that way, way, way underpriced. And stock popped. It hit the hyperlicker price, went above it, then came back down. So basically hyperlick was a much better indicator

than the traditional book building that happens in an IPO. Um, they, they do in SpaceX now. I think the, the, the, this to me was probably the bigger threat. But this is a bigger margin. This clearly can't explain what, what happened. Yeah, yeah. It's what the statement was, right? But also, it's not what the CME does, right?

Why does this impair their business or ice? Ice funds, spot exchanges. Right, right, right. But this is like, like investment banks are the ones who are threatened by this. No, but the, the, the whole compendium of I'm a company and I have to choose an exchange. and they offer me some deal and their deal is like oh like we'll get the banks to give you a cheaper discount on price you know there's like there's a whole sales fair enough fair enough i would think like goldman and jp morgan and these guys are going to be the most so isolated like there's like a there's a

whole kind of package deal and like there's a ton of like trading of performance fees between the different entities to like be to lock people in and like that that's a large revenue source okay fair enough There was this photo that went kind of viral of like someone taking a selfie from like the, it was like the Morgan Stanley, like the trademark partner who invested in Cerebrus, right? Oh, there was the benchmark. Okay. Well, anyway, and then, you know, you could see some of the monitors on behind him. And like, in one of the monitors, they had the Cerebrose, like, hyperliquid for your IPO thing.

And there was also the banner at the top, like, you know, you're in restricted region. Yeah, yeah, yeah. It was the pricing data, you know. Hey, the data is not restricted. Amazing. The data is now restricted. The data must flow. that yeah that i mean it is

it is i mean everybody in crypto as long as i remember being in crypto and also kind of everyone in tech is always skeptical of investment banking and like you know these like the voodoo of book building and like oh no we know what it should be price has and the ipo pops and something you know like tech is all like the direct listing stuff all came out of the tech industry where they're just like screw these bankers they're you know this is all just intermediation and it's bullshit and we don't need any of it you know google famously they did their iposage

We're the auction, we're the auction guys. Obviously, we've got to run an auction. And the direct listings that have happened were fine. They went reasonably well, and so they didn't break. And once upon a time, people, I think, on Wall Street, claimed that this was going to be the worst IPOs ever, and they're all going to fall apart. Now, obviously, it's hard to do a direct listing if you don't have demand, and you're not a known stock. And so traditionally, the IPO is a marketing event. It's a roadshow.

It's a fundraising event for people who, you know, often Sometimes they need to raise money, and they also need long-term investors. So I don't know. How do you guys think? Let's say that you've got a world where Hyperliquid is playing this role, or other venues in Defi, who knows, maybe they managed a headshot Hyperliquid or something. But somebody is always going to be willing to do this, right? Cats out of the bag.

They can't put this back in the box, even if they go after one player or another player. So what do you think this does to the IPO process or the book-building process for investment bankers and IPOs. Yeah, you go. I mean, I was talking about this on a previous show where like the process of book building is also like you want good long term holders, right? It depends on, I mean, I feel like it's the problem is like you have so many variables that you're trying to optimize for, right?

It's like you do want like a little bit of a pop. You actually don't want to be priced perfectly. So they say, who knows? I think that hasn't really been battle tested. You have a zero trying to raise money for the company. But also like you do want your equity in the hands of people who, are good stewards of it and their long-term holders. It's not like, it's kind of like the art market too, right?

It's like, you know, it isn't just like highest clearing price. That's who it goes to. And so, I mean, maybe the answer is this is all bullshit. And like you can't actually optimize for like three, four variables simultaneously. And we just decide your best price is actually the highest price and that's fine. But I don't know. I'm, I think, I think of anything, it's like, you know, I think it's kind of the trend of like, you know, markets for everything.

And like, this is just one of those things that has always been kind of opaque. And now it's like, well, there's a market for it. It's getting like less and less opaque over time. I mean, it is a prediction market, right? And prediction markets are subversive because there's a lot of business processes that depend on who knows. You know? And like, the bankers, who knows? And so if it pops, it's like, well, it was impossible to know that.

So sometimes IPOs don't pop. Sometimes they go down. So it's a good thing we made it pop because it would be a lot worse if it was otherwise. Now you can quantify your expected value when they tell you like, oh, you know, you know, whatever, Fidelity is willing to buy these shares at a 30% discount to the hyperliquid perp, is that worth it to you? And now you have to make an economic decision as opposed to a vibes decision. Well, it depends on the lockup, obviously. Right. I do think the cat is out of the bag, though. And like, in hyperliquid's defense, it has at least brought something to market that

people want, and not just retail. Yes, a lot of retail on there. But you know now that plenty of traditional trading platforms have offshore entities that are trading on hyperliquid now. I think that may be some of what's motivating, some of the traditional incumbents to have concerns over either bringing hyperliquid onshore in a regulated way or something like that. I do think you're also seeing this trend generally, including with like prediction markets and things like that towards more transparency and information and a lot of frictionless interactions, right? Like, nobody wants to have a ton of friction in any of their financial transactions anymore. Think the median or mean age of people who are actually engaging these transactions is dropping fast.

So everybody wants everything to move quickly. And so, I mean, I'm not saying investment bankers will become obsolete, but I do think these models are going to change and there will be a lot more optionality. Like direct listings was probably one of the first innovations and we're going to see more things happen over time. Right. Plus the SEC wants to take, wants to make IPOs great again, right? Like, you hear Paul Atkins talk about that a lot. And so I do think he's going to change how some of it works to take the friction down out of IPOs. I mean, I think another portion of this that goes back to your point about distribution is, like, retail participation in IPOs has been maximized, like, strictly increasing in the last two years.

So much so that like the apps are basically doing watery to, you know, like they get allocation from users and like they don't have enough. capacity that they're allocated. And so I think this like direct to consumer IPO thing is like, you know, I know SpaceX was initially going to do it and they canned it because they kind of got too big. It's too big now to handle that. But I do think there's going to be some aspect of that that interplays with the hyperliquid price more than the, or like on-chain price, whatever it is, more than the traditional investment banking price.

And like that, that will. You mean retail getting out? ex-IPOs via hyperliquid or like their or their oracle price they use will be the hyper liquid price for like how much they're allocated per unit dollar right like like I I I sort of more think like there's going to be some investment banking price that's more about to meet certain regulations we need to have like this many long-term holders aka some of our board members need to own more than X percent or you know whatever there's a ton of constraints yeah that that are kind of boring that are like

like some of the reasons, I think, like, the long-term holders have these issues. But then there's going to be this, like, retail IPO participation. And honestly, like, right now, the retail IPO participation, when there's more demand than supply, the apps just... Oh, you're saying the prices have to float up for... Yeah, exactly. I basically... So retail gets fucked again? Well, they'll get somewhere in the middle.

Okay. And I think that's probably... That's the way to satisfy that much demand, right? And fundamentally, I just think, like, IPO is doing... It's funny because I think, like, most... retail do not prefer that. I think most retail are like, no, no, no, no, I want to play the lottery and like maybe have a chance of making a lot of money. I don't want to just like get the market. Another thing that's very crypto forward that doesn't exist in traditional finance,

but is like sort of how this happens on chain is the supply of the token is dynamic. It's not just like fixed, right? Like I have a staking reward every block that's changing the supply. I have, you know, different mechanisms for. adjusting the supply. I could totally imagine a world where you have the investment bank holders who have a certain size, and then you have the retail participation, which is elastic. And like, there might be actually more supply at the IPO that based on how much retail demand that is. And that gets priced higher. And that, but that looks like, that looks like your normal on-chain bonding curve type thing. Right. Yeah, but like, okay, think about an ICO, right? So in most ICOs,

people really, like, you know, I don't know, take the Mega-Eath ICO, right? You can imagine a world where the Mega-Eath ICO, they're like, okay, we got a ton of demand or oversubscribed, so we're just going to basically make the market clear by raising the price until, you know, whatever, all the demand clears. People really don't want that. They're actually like, look, I'd rather get kicked out, but the people who got in get a guaranteed two-x or three-x or whatever. I don't know.

I guarantee you if there was an anthropic IPO tomorrow that would not. People would not care. They would 100%. Okay, that's maybe a little bit different because people assume that some stocks go up only. People assume that tokens go down only. So it's a little bit of a different, it's a little bit of different mechanic. Not under clarity, hopefully. True, true.

Then they'll be up only. So engaged in her like. She says they will be up only if clarity passes. Not financial advice. Imagine if you do have dynamically shares quantity IPOs, right? Like direct listing is sort of was like one way of kind of implicitly doing things. Yeah, yeah. And I kind of think.

like we're gonna end up with the thing that crypto has is it the programmability means you you can do all of these things and so you have that you learn the lessons from crypto and then hopefully those get imported into the market sell into retail yeah okay no as in just like you should yeah and your share account right especially if there is that much more demand right i mean a small amount of dilution for more accurate pricing is probably worth it right like that's the real question and how much dilution you're willing to take to get at better price. Yeah. Yeah.

That makes sense. Okay. So let's switch gears because we are doing the regulation bonanza episode. No, Tarun took over because he was like, I don't want to do it. No, no, no, no. Ultimately, that was also about regulation. Everything at the end of the day is about regulation one way or another. So prediction markets, we alluded to them talking about hip four.

But the main prediction market players, Kalshi and Polly Market, have been locking horns with state regulators and lawmakers all over the country. And it's been a bloodbath. So many of these states have been suing Kalshi and Polymarket and Crypto.com and Coinbase. They've been suing them back. They've been sent as preemptively suing them. Now, the CFTC is getting in and suing them. It's basically like a WWE fight where, like, the ref is getting in.

He's like hitting someone with a chair. People from the crowd are jumping in. Like, it's total pandemonium. Right now, it's hard for you to even summarize because there's so many cases that are, flying around right now. But basically, for the most part, there's been a couple wins on behalf of the prediction markets, mostly losses. So mostly what's happening is that when the cases are finally getting to some kind of judgment, the judge and or juries are basically like kind of looks like gambling and gambling traditionally. Sorry, not juries.

Okay, just judges. The judges mostly are saying like, yo, this really looks like gambling. And gambling traditionally has been the jurisdiction of states. And these, There are state courts. So naturally, state courts are like, oh, belongs to states. What are you going to do? Yeah, but there's a difference because in the federal courts, there's been a big win in the Third Circuit for Kalshi, where the Third Circuit said, no, we're not going to do the state by state patchwork. This is actually the CFTC was very clear, or the SEA is very clear. The CFTC has exclusive jurisdiction. You don't also have to comply with state gaming laws. Just follow what the CFTC said. I think the Ninth Circuit case. But that one's also getting appealed, right? Well, it will go up to the Supreme Court. And the question really is, will the Ninth Circuit have their ruling?

That's another Colchie case. The CFTC is involved in that one. In time for the way the Supreme Court decides whether to take cases is usually if there is a circuit court split at the federal court level. And so I assume that they're made, especially because the Ninth Circuit is California and I don't know if it's Nevada, but definitely everything over on the West Coast. Yeah. And so likely will come out in favor of.

of the states, I'd assume, or against prediction markets. And so you will have the Supreme Court looking at this probably in 2027. So final showdown will be at the Supreme Court to decide, do the states decide or does the CFTC decide? Part of the argument that- Imagine telling a founding father that the separation of rights between states and the federal government, while you're writing this constitution, just think about the prediction markets in the future. They have to separate.

They had gambling. They had gambling back then. You can easily have explained it to them. That's the interesting thing. That is true, actually. It doesn't seem like magic. That is true. Prediction markets also were like back on presidential elections and like the 1800s.

Exactly. And like there was a prediction market found Pope back in the day. Imagine you could go to like the Declaration of Independence or the Constitution writing. And you're just like, look, this is how this will be used in the future. You took the time machine back in here. I mean, to be clear, the Commerce Clause was pretty clear that like if it's not interstate commerce, now we've we've warped that. so profoundly to basically touch everything. Yeah, but I'm just saying, like, I imagine.

It's one of the few Supreme Court cases I think that you could take of recent and go back and be like, it's very easy to understand. True, true, yeah. So we'll get this final showdown soon. Right now, I guess there's a sliver of the country where prediction market's okay, another sliver where not okay, a bunch of places where it's being duped out. mostly these injunctions or restraining orders have been defeated or paused or whatever pending some kind of global federal final regulatory or legal adjudication by the Supreme Court.

But how would you, I don't think there's a prediction working on it yet, surprise, surprise, how would you handicap the odds if it goes to Supreme Court? Oh, if handicapping the odds if it goes to the Supreme Court, I think a very high likelihood that they come out in favor of CFT seizures. jurisdiction or jurisdiction. Really? Why do you think that? Why do you think that? I do, I think there are going to be these structuring arguments.

I think they're going to be these game of skill versus game of chance arguments. I think the federal... So what do you mean as structuring? What's structured? Oh, I think that the way prediction markets are actually set up is a little different than how state gaming is set up with the house and odds and who's setting it, things like that. I do think there's a game of skill versus game of chance distinction that has been made. I also think that.

I also think that the, I mean, I think the Third Circuit opinion is actually very good in terms of looking at how broad the CEA is. I think the real big issue, just to put it out there, although everybody has put it out there, so I worry about my Twitter presence after this, but is a sports question, right? Like, if sports wasn't out there, it's unlikely the states would care, right? Because we have prediction markets for a long time. All the cases are ultimately about sports. Of course.

And so the question really is, is can the CFTC allow prediction markets on sports? to continue, but we have even new small venues, like we were talking about before, in Rothera, which is this JV between Susquehanna and Robin Hood. They just self-certified baseball contracts. And the CFTC itself has all these MOUs with different sports organizations, MLB and the like. So I think that there is a high likelihood that it comes out in favor of the CFTC or federal. So I'll actually take the other side of that. Okay.

I think, I mean, we're probably like investors. I'm losing it every way on the show this time. No, no, no, that doesn't mean you're a loser. To be clear, you are much more qualified on this than I am. But I actually think this Supreme Court is very suspicious of, like, federal power. And I think they're largely in favor of states' rights and largely. And they're sort of, I mean, this is ultimately a federalism question. And meaning that, like, you know, the question is, do states decide or does the federal government decide?

No, I don't agree with that framing because there's legislation that says, on these venues, here is who has, who has. jurisdiction. It's not like do states get to decide, I'm trying to think of like a non-controversial topic to bring up. Yeah, I mean, look, it's obviously controversial because of the fact that there's a long history of the state gaming laws. Marriage, right? Marriage is a state question and not a federal question. There's no federal law that talks about marriage and things like that. So that goes to the states. But there's a federal law that talks about how these markets are regulated and which federal regulator has jurisdiction. The question is, are these sports markets within that jurisdiction? Correct. Correct. That is the question.

But why not? Well, I mean, the clear argument, I mean, this is why there's this big circuits played and so on, right? It's like because I think the common sense view is that, well, this is sports betting. You're betting on sports, right? Like I think one of the quotes I saw from one of the judges was it's sort of like, you know, commodities are usually defined or, you know, commodity derivatives are defined as having some effect on some commodity or like the price of real world things.

What exactly is the outcome of the Orioles game? So what I was going to say is there may be some circumscription around it, right? Because what you're talking about is the definition of swaps, which is extremely broad and is contingency based, right, on the occurrence, non-occurrence, and it's of a particular event. Yeah. And usually that has an economic impact, right? And, like, that is the outcome in Orioles game having economic impact now.

I've seen all these arguments where it's like, oh, who's going to win the Super Bowl? And there's an economic impact, right, on the hotels. Yeah, yeah, yeah, yeah. like that. And in theory, that's very clever, because if you think about, one, why these event contracts, swaps, whatever you want to call them, are under the CFTC's jurisdiction is largely way back in the day the CFTC was an agriculture regulator, right? Because you're like corn futures and the like. And farmers would take out insurance, by the way, of event contracts as a way to hedge against their crops getting wiped out and things like that. So that's sort of...

So, yeah, even one of the states that banned prediction markets allowed for weather contracts on prediction markets for this reason because of the ag lobby. Yeah. So I do think that you may have to say that certain types of sports markets are not permissible, but I don't think you can. If they're small enough that they don't have an economic impact on the tourism of a state, then there's not an economic downstream impact that could make it a... In fairness, the CFTC has put out guidance and rulemaking on prediction markets,

and they've said when you're self-certifying these sports contracts, you should look at the economic impact question. Even the CFTC has that right. Yeah. I didn't know that. Yeah. Okay. So if it's a small, you know, if it's a little league game in your local neighborhood,

you can't put a prediction. Those are going to be harder to justify. Well. Yeah, like if you're doing parlay, then you're doing all this stuff. Yeah, yeah, exactly. No. But, you know, the CFTC guidance and rulemaking also says when you're self-certifying a contract, you should make sure it's not susceptible to manipulation or readily susceptible to

manipulation. and I'd say the single player points ones, probably I'm not self-certifying contracts, but maybe more subject to that. So there may be some way. There's some nuance here. Okay. You think maybe Supreme Court splits the baby and says, okay, well, there's this test and the test is like the economic impact, da-da-da-da.

And like, look, if you're doing this, you know, three-legged parlay, that's probably not a measure of any economic impact to anything. Yeah. But if it's like, okay, who wins the game in, you know, the playoffs? The game existing implies some economic impact. buying beer and popcorn. If it didn't exist, there wouldn't be a... But it's not necessarily measurable if it's like just... But the home team owner could be hedging their popcorn.

I mean, you laugh, but like, it's clear that like, you know, Al-Shee, for example, like, when they go on panels, they really, they do talk about this point. Not the popcorn thing, but they're like, what if I'm a, you know, player and I want to, like, hedge my salary and it's like... Well, you can't bat on yourself. That's a... It's supposed to get some of the rules. No, no, no, sorry, it was maybe some other market participant, but they did, they did talk about, like, oh, someone who is, like, hedging against the outcome of the game in the sense of, like, you know, again, someone would, like, hedge corn future or something. Wedging is, like, just kind of implausible. They run a hot dog stand out of the thing.

Who wins the Super Bowl? I don't see how that would impact a hotel, but, like, will there be a hurricane if it's in New Orleans that would. Who wins impacts the home city? Because the home city will be buying a bunch of beer. more beer like X percent more than that I don't know yeah also increases the chance of riots so right exactly there's a lot of property damage yeah huge properties insurance companies I mean yeah I mean look I do think we'll see some some also like the outcome of a game because very often like there's a series the series ends and the final game which means that there's maybe not another week of tourism

so there's a lot of there are a lot of reasons yeah I'm I'm all about this like whereas like The single player ones, I think, I do think that that's going to be the hardest one to like, yeah. But I will say that's what most of the volume is anyway, the big games. Favorite polymarket of the last year was the Super Bowl coin toss. Which traded at 5842. What? Really?

Yeah, it was. What? That is incredible. It was amazing. You got to go look at the chart of that market. It's amazing. Not to talk about another podcast on this podcast, but Odd Lots asked the chair. of the CFTC, Mike Seleague, could you have event contracts on the coin toss? Is that permissible?

And he's sort of like hedged, but basically said no. And they asked Vlad from Robin Hood too. And he was like, no, that's not a real event contract. This one was there and it was very funny to watch. Okay. Interesting. But on the defy on the defy platform. Yeah. Yeah. But so, okay, what does this do to like the Bitcoin five minute up-down markets? That has an economic impact. Yeah. Okay. So those are those are fine. Economic impact. No, no, no. I mean, when we're talking about event contracts way back in the day, I don't think any of these types of markets. To the founding father's point, I don't think they were, I don't think they were contemplating these kind of event. What happened if I was in the third layer wrapped Anthropic SPV and then I just found out I got rug pulled?

Whose economic impact did I impact there? Yeah, yeah, okay. That's the parlay of. And then you got to come up with a perfect thing. That's the parlay of traditional. I'm going on it too. Okay. Wow.

That's very exciting. Okay. Last story. Last story. We're going to talk about tokenized securities, everybody's favorite, to wrap up the regulation Bonanza episode. It has been. So there's been a lot of excitement going on on Twitter about this idea that the SEC is about

to drop some tokenization guidance, I guess. Do that guidance? Can we call guidance? The innovation exemption. Innovation exemption, right? So basically, the idea is that. that, look, you guys have been doing all this tokenization stuff. Technically, you've been kind of getting ahead of us a little bit.

But we want this to exist. We want to make it so that you can tokenize a stock without asking the person, the issuer. You can just go and do it. And there's going to be clear rules about how it gets noted and whatever, all the bureaucracy that goes into stock tokenization. Tell us about why this matters and why you're excited about it. Great question. Again.

So there's been a lot of talk for, I'd say, the better part of a year. that the SEC is going to issue an innovation exemption around tokenized securities. It's never been 100% clear. I think what we've gleaned is that there are going to be a couple different aspects to it. The one we thought was, how are you going to get tokenized equities in AMMs? And that is what this was going to address. What has been going around on Twitter and otherwise is that somehow this is going to allow for what they keep calling third party tokens.

And I was like, I don't even know what that is. But I think that it may address the models that don't have underlying securities that are being held, right? These are three-layer Anthropic SPVs? I don't think. Some of those, I guess, got token. They did. And there was this whole thing that they weren't, right? And then everybody was like they're not going to be.

Hyperliquit, no, no, no. And Slana, an X-Stox. No, no, it was some other thing. What was it? No, it was on Slana. Pre-sox, pre-sox. Pre-sox. Pre-sox.

Yeah, yeah, yeah. But anyway, so supposedly they are going to address the various different ways that you can have these tokenized equities, right? Some of it is, okay, somebody's holding an underlying security and then you tokenize it and you can trade it. But some of these, right, are just these like derivatives that are tracking the stocks. That would be very surprising. But that's what the Twitter hubbub is. I'm just excited to see it because... How does Twitter know, are there like leaks coming out of these?

The SEC, what do we talk about? I could be wrong. This could be the episode where I'm wrong the whole time. Bloomberg had an article, though. They did, but I, so I think the SEC has been very thoughtful about when they want to put out the innovation exemption in light of how clarity is moving, right? They, they, there is a tokenized equities provision in clarity, section 505. That also is what held up the last markup back in January.

That has been negotiated and there's good language in there and people feel good about that. The Salon of Policy Institute actually did a ton of. great work on getting Section 505 to a good place. So I think they've been wanting to be very careful around that. And I don't think getting the Senate banking draft out of markup would necessarily be like, oh, cool, free for all, we'll do innovation exemption now. I think especially if people think that, you know, the White House said we want to get clarity signed by July 4th. I don't know why they'd rush the innovation exemption out. But again, it could be wrong. We'll find out. So you think it's a flu, like this is a juke and they're not actually going to drop it until they see what

happens with clarity. I think that's a better, I don't know if I had polymarketed it. You think it's bad info. I just think it's surprising information because I don't know why they'd start. My sense of the SEC that they're like, look, we're going to do this shit anyway. Clarity is a cherry on top, but we're not waiting. And that's also what the CFTC has signaled. Does that look, we're just going. I mean, we've heard the innovation exemption is coming countless times. Like we could probably splice it in or like, you know, paste all the times from the speeches where they've said, we'll get it out in a month. But Sure. They're going to get it out. I have no doubt that it's ready. It's made its way through every single department or division within the SEC that it needs to. So I'm not questioning that it will come out. And that'll be very forward-thinking and interesting and good for the industry. I think, I don't know if you guys talked about this at any point in time. But, you know, there was this amazing guidance from trading in markets that you could have non-custodial front ends where be sort of available for tokenized equities trading with, yeah, like JTX, just had to draw.

that all as much, guys. Yeah, yeah, coming July. But anyway, so, like, you're going to have very forward-thinking innovation exemption. I just, I don't know why it would come out this week, but maybe, maybe because it got through park-up. So, okay, last thing, I think we're running up on time, but for tokenized stocks, so far they've been kind of a dud. Not a lot of volume, you know, that everything is kind of, everything's kind of sleepy in tokenized stock land. All the action has been in perps. So you can see trade XYZ and, you know, the stock trading, especially the pre-IPO stuff has been really explosive. Do we think that an innovation exemption is going to change that?

Tarun. I don't know, but all I know is that, like, the people fighting over whether the issuer needs to be in the room with you, I just think about the meme with the, like, two people and the third one, you know, like... We can use this. Okay, did you get everyone's consent? I think of it more like, is the issuer in the room with us now? Or that, yeah, yeah, I just like, the issuer does not give a shit probably for the most part about this type, because it's so small relative to their...

I mean, look at Anthropic. Oh, I totally disagree. I don't know. Sorry, sorry, private issuers, but public equity companies that there's like, oh, someone's trading some derivative. I'm like, do they really care that much? Yeah, it depends. I mean, it depends on how they're being traded and may be sure the volume question. Well, the token of stocks will not have voting rights.

No dividends. They don't have dividends? The derivative versions of them, but the ones with the underlies should? Why not? I don't know. But like, yeah, okay, so they may or may not have dividends based on how they're structured, but they don't have voting rights, like in any case, is my understanding. Under the innovation exemption?

That's at least the language that I saw. Oh. What are you? DC is that. No, no, no. I mean, this is the notes that I have. I am not a DC. This is not the token, you know, the innovation exemption itself.

I take it back. Sounds like I don't know what the fuck I'm talking about. Maybe on the third party token. I don't know why they keep calling it third party token, such a brain thing for it. So maybe that's in the innovation exemption somebody saw it. And that's why you're reading about it. So I would say on the derivative version of it, sure, you wouldn't have those things. But if you have the underlying being held somewhere and you're holding a tokenized version of that.

But I guess like if we look at the current tokenized sucks, the derivative one seem to just have all the volume, like 80%. It's just like the ones where the issuer has to be involved, it seems like the issuers themselves are like, this is too cumbersome, I don't care about these users whatsoever. And like you kind of are, the market is forcing you away from that. That's like kind of how I don't know. I mean, it's hard to draw too many comps,

but I do kind of think of what has happened with Stablecoins post genius, even though really not a lot actually has like happened from like a roommate perspective, but it's given this kind of like endorsement and this go ahead from, large, normally risk-averse companies that you can do stuff with stable coins. Even if you're not issuing, it's like, stable coins are okay. And I think I could see this where it's like, yeah, there's this weird, sketchy kind of gray

thing you could do if you're a company. And it's like, I'm not going to do that. But hey, maybe if this comes out and there is like more of a path forward, they was willing to explore it. And then that's kind of what you need. I guess the problem I have with that story is that like most companies are not sitting around thinking like, man, how can I get my stock onto more trading venues? Except my biggest problem.

That's the biggest problem. Okay, Hynex are the only... This is a very, like, crypto way of thinking about, like, how... Yeah, yeah, exactly. I think the issuers really do not go a flying fuck about these people whatsoever. It's not how they're thinking about it, like, how do I make the stock price go out? The answers I need to get on chain. You're building a Rubeberg machine to, like, let the issuer be involved, and the issuer is, like,

I don't care about it. You know that I don't care about you mean. Like, that's literally... Yeah, yeah, like, I don't think about. Like, this is not what I'm thinking about. I'm like, I need to, like, lay off half my team and, like, do some... write some press release about how I'm turning the company to AI. Like that's how I get my stock price to go up.

Getting my token on a blockchain, you get my stock to do a tokenized thing on a blockchain so that like the 12 people on chain can trade it who love tokenized stops. I think if you just play ahead a few years, the people who are offshore who are buying stable coins, that's incremental demand for you as dollars. What do you think they're going to do with their dollars next? Yeah.

Go on hyperlick. You know, 40X long. my like I think it's we obviously crypto people are DGens and they love volume and they love volatility but like most people don't like you know you look at like I mean I don't know look in India like look at all the trading volume there that's in like you know derivative like you know see me Bitcoin futures right like not super high volume but like huge OI and that's like there's like a different sort of class person that they think about and I think this is like basically building a long term holder base that is but that doesn't that doesn't make your point because

that's also open interest in a futures market that's a derivative no no no my point is like holding spot actually, like a spot tokenized version, isn't going to generate volume, but like it is going to generate a long-term holder base. So, and I think ultimately like purpose or no, no, no, the conjecture is that it generates long-term. That's the thing you're jumping and assuming that that's true. I don't know if that's true. I mean, I mean, again, it's like if you did want to just trade it, like, why would you not just do a? I mean, look, if we're talking about the great unwashed masses of like, you know, the, I don't know, like the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, the, they're not good for, they, they, they're, they're, they're, they're, they're, they're, they're, they're, they're, they're, they're, they're, they're, like, they're, you're, they're, you're, they're, like, you're, you're, you're, you're, you're paying funding, hey, it's like a future, a dated future is a perfect solution to that.

Sure, but I mean, you still pay a basis on it, right? Yeah, for sure. I mean, look at like the drag on like a Bitcoin futures ETF versus the spot. The vast majority of people do not want to trade. They want to put their money in a little thing they don't think about. And in that case, like, yeah, I think this can be like an unlock for them. It just, it looks different than the normal people who are traded. But, but again, my point is, like, the drag costs from the derivative should be eaten by

the arbitrage market, and then the user should just basically be paying some small, fixed carry cost. Yes, it's not zero if the issuer was involved. But getting the issuer involved involves, like, getting an issuer who to care about this type of person, there's a chicken and the egg problem,

and it feels like way harder to bootstrap. Yeah, and all the tokenization startups, they also charge a caring cost. Exactly. They got a business model. They got to eat too, man. No, no, no, that's my point. It's like, it's not for,

This thing doesn't like I don't that's why I don't get I'm like the derivative seem fine because like the type of user you're targeting is already Stunted in some way. They can't just like go do you stunted They can't they can't they more say more like they can't They're also only available in the EU. So think about what you're talking about. Sorry only only that's right. That's right. That's what I mean by stunted. Yeah They're not sure Okay, all right with that we are up on time Up on time. We got we got to let everybody go but we will be back again soon. Thank you so much for coming on. This was very elucidating because we know nothing

about regulation. I think Tarun was entranced. The lion does not care about regulation. No, that lion is looking very concerned about the regulations that are coming, actually. I would dispute that. Anything else you want to plug besides JTX? That was a great. No, JTX.com. Go sign up. You heard it here first. Okay. All right. Thank everybody. And we'll be back next week. Thank you.